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How the West Was Re-Won

Jul 24, 2012Dominique Moisi
At a time when the US economy remains fragile, Europe’s financial crisis is fueling an existential funk, and Japan’s deep structural malaise continues, the West's decline seems undeniable. But there are good reasons to doubt conventional wisdom, beginning with the West's growing awareness of its new, reduced position in the world.

PARIS – In 2005, at the Royal Academy of Arts in London, a prestigious exhibit sponsored by the Chinese Government, “The Three Emperors,” celebrated the greatness of Chinese art. The show’s central piece was a giant painting in the European (Jesuit) style depicting the envoys of the Western world lining up to pay respect to the Chinese emperor. The message could not have been more explicit: “China is back.” The West would have to pay tribute to China in the future the way it had kowtowed to it in the past.

In 2012, China is on the verge of becoming the world’s largest economy and is by far the leading emerging power. Yet two simultaneous phenomena suggest that the West may have been buried prematurely by its own Cassandras and by Asian pundits who sometimes behave like “arrogant Westerners.”

First, the West, particularly Europe, is slowly taking the measure of the Asian challenge. Second, it is doing so at the very moment that the emerging countries are starting to feel the consequences of a world economic crisis that has Europe as its epicenter. In other words, a new balance of strengths and weaknesses is emerging beneath the surface of events – and runs contrary to current mantras. Europe has awakened to the Asian challenge just as its own crisis exposes and intensifies the emerging countries’ economic, political, and social weaknesses.

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Indeed it is arguable that Europe's imperial expansion was in part due to the weaknesses Europeans such as Macartney found when visiting China in the 18th century, and that modern Chinese boldness is similarly encouraged by the weaknesses reported formally and informally by (for example) overseas chinese working within government departments and public services of democracies. The miscalculation China makes is to believe that the West's liberal democratic ways are evidence of a moral vacuum and consequent structural weakness, and that those in command in the executive initiate the West's strategies of self-defence. The miscalculation fortunately is bringing about a counter-action from established populations of the West.

In their hearts the Chinese must know that they are not exporting much back to the West which the West didn't hand or sell to them. That would fill them with a deep sense of self-doubt which could only be salved with expansionist nationalism, hence the success of the self-affirming rhetoric of humiliation and rejuvenation.

Coincidentally, I posted this comment this morning: http://commentaires.lesechos.fr/commentaires.php?id=0202209066029 (Colombo), in relation to this article: "Les ruptures d'un monde qui change" (http://www.lesechos.fr/opinions/edito/0202209066029-les-ruptures-d-un-monde-qui-change-351630.php), and I read this article of D. Moïsi this evening.

The plethora of misunderstanding about our World system, about our economy, finances and all aspects of the global crisis is understandable.
We still do not grasp what unprecedented revolution we are going through, how our whole life, attitude, lifestyle is changing as we speak.
Those people at the helm, and those still analyzing, predicting, suggesting solutions come from the "old era", from a completely different, "angular", polarized mindset, that simply cannot grasp the new, global, interconnected, generally "round" reality we evolved into.
In this new reality these notions of "China is back", "reclaiming", "leading", or "competing" lose all their previous meaning, since in this new reality we are all so tightly interconnected and interdependent as cells, organs of the same body.
Can we say, that the left hand competes with the right foot, or the right ear overtakes the nose in importance and so on?
It will take time until we understand, moreover when we truly internally feel that we belong to this single, unified network whether we like it or not, and in order to survive, to build a sustainable future we have to adapt to this network.
Only a global, integral, transparent and factual education program for all levels, cultures, ages and genders can bring about this transformation in a swift and pleasant form.

Although in complete agreement with the premiss of the interconnected, more "round" world you suggest, I do not agree with your conclusion. We are not yet in a "round" world, nor will we get there in the foreseable future. Although we are more integrated and interdependant, we are not totally so. Nationality, fiscal jurisdiction and ultimately even geography creates some polarization. Not only is a textile company in europe today competing with texrtile companies in china, in such a way that for the european textile companies and for the european states it would be more desirable if the chinese competitor did not exist, ultimately a company in the periphery, even of a totally united world with one government and where nationality were irrelevant (a utopia/distopia), the polarization periphery-centre would still exist, and therefore there would always be a source of tension and "moral" division.

In 2008, I saw the exhibition "Terra Cotta Warriors: Guardians of China's First Emperor" at the Bowers Museum in California's Orange County. These pottery figures had been mass produced in startling numbers with high levels of standardization and quality by China before the time of Christ. The manufacturing process depicted in the exhibition resembled the high tech manufacture of semiconductors which I had witnessed as I worked by way up to CFO in California's high tech semiconductor, computer, and medical imaging industries.

Needless to say, my visit was quite thought provoking. China has tremendous powers of organization and the ability to overwhelm western manufacturing on a scale of one or two magnitudes--that is they will be able to produce at lower cost, much larger volumes, and eventually in necessary quality on a level way beyond most Western manufacturing. This is going to shift the economic balance of power much more than many observers currently imagine.

If you have been a cost accounting manufacturer in high tech, as I have, then you can grasp the tremendous first mover and network effects of putting in place at large scale powerful new manufacturing technologies. The comparative trade advantages of China and other East Asian countries in the coming decades is going to be hugely significant.

Europe is trying to reorganize today around the paradigms of the past to face a future competition that is going to have a ferocity they do not imagine.

In particular, Europe is going to need to generate large future free cash flows to plow into investment and retraining at a level they are not foreseeing.

That is the real lesson of the current financial crisis: Europe does not have the future free cash flows to generate the needed investment to stay competitive.

Europe needs to integrate much faster than they think and they need to reinvest to create scale economies that they do not envision.

Eventually the crisis will create a United Europe or Europe will break into a bunch of squabbling 19th century economic principalities awaiting a Bismarck to unite them.